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ACP agro-food exports: The growing importance of NTMs & SPS dispute settlement mechanisms

25 May 2014

Introduction

An E-book published by OECD in January 2013 noted that as classical tariff barriers to trade have been dismantled, so non-tariff measures (NTMs) have taken on greater significance.1 It highlighted how NTMs are increasingly being introduced in response to concerns over the environment (in the form of sustainability certification), food safety, animal welfare and sanitary and phytosanitary (SPS) matters. According to the OECD analysis, “the trade cost impact of NTMs [is] more important than prevailing tariff rates in obstructing trade.” The publication asserted that “most NTMs are put in place to assure that imported products comply with the same standards and regulations as domestic products” and are seen as “corrective actions” where markets fail or result in socially inefficient outcomes, but also called for more cost–benefit analysis of NTMs. Case studies cited in the E-book suggest that in some countries stricter standards have induced a shift from smallholder-based production to commercial farm-based production for export.

A further publication by UNCTAD, ‘Non-tariff measures to trade: Economic and policy issues for developing countries’,2 published in August 2013, highlighted the diversity of NTMs, which range from instruments of commercial policy (“e.g. quotas, subsidies, trade defence measures and export restrictions”) to instruments for the pursuit of non-trade policy objectives (e.g. technical measures linked to food safety, SPS controls and environmental objectives). The report argued that while it may be unintentional, the “restrictive and distortionary effects of non-tariff measures may be systematically biased… against developing countries and more so against low-income and least developed countries”. Significantly, the UNCTAD analysis maintained that “NTMs can have quite diverse effects, depending not only on their type and scope, but also on the economic framework in which they are applied,” and added that the actual impact was also dependent on the “implementation procedures and administration mechanisms” used.

Discussions in the WTO at the end of October 2013 suggested that streamlining implementation procedures could cut the market access costs arising from NTMs by up to 80%. This provides the context in which the UNCTAD analysis maintained that it is necessary to improve the transparency of the application of NTMs in order to reduce obstacles to trade and also the costs of trading.

Implications

NTMs are an increasingly important issue for ACP countries and can now be seen as the principal obstacle for ACP agro-food sector exports. In 2012–13, the EU introduced changes to a range of SPS and food safety controls. These changes increased the costs of supplying EU markets, and also raised some questions regarding the scientific basis for the new controls.

In the case of South African citrus exports, the reduced level of tolerance in the EU for interceptions of Citrus Black Spot has required the Southern African region’s citrus industry to introduce additional measures and controls at a total estimated cost of between R500 million and R1 billion (in the form of additional spraying, storage and other control measures, and losses arising from exporting to alternative markets). Despite these measures, on 28 October 2013, the EU introduced a ban on citrus imports from South Africa, with the potential to extend the ban into the new season. The EU ban also appeared not to take account of a report by an international group of citrus sector scientists which maintained that trade in citrus fruit “has never been demonstrated to be a pathway for the entry, establishment and spread of CBS”.3

The EU also unilaterally increased the rate and duration of inspections in ways that, in some sectors, reduced the commercial value of ACP agro-food products.4

Collectively, these initiatives threaten significant disruptions to current patterns of ACP agro-food sector exports, with the burden falling particularly heavily on smallholder producers seeking to participate in higher-value export supply chains.

Issues arising

While affected ACP exporters’ associations and national governments have all complained and sought bilateral consultations to resolve specific SPS/food safety issues,5 to date limited success has been achieved, in part because of the absence of:

  • clearly defined structures for the exchange of information on planned changes;
  • effective consultative structures on the scientific basis for such changes;
  • binding arbitration mechanisms for trade disputes related to SPS and food safety issues.

Establishing information and consultation structures and binding arbitration mechanisms of this nature potentially offers an important area for collective ACP initiatives, both in dialogue with the EU and beyond, at the WTO.

Indeed, in 2013 the Commonwealth Secretariat published a report by Nobel Prize winning economist Joseph Stiglitz and by Andrew Charlton in which they reviewed the shortcomings of the WTO process and proposed the establishment of a “right to trade”.6 Their proposal recognises that there are significant aspects of developed country policies that constrain the ability of developing countries to participate in international trade, and that these policy measures fall particularly heavily on the agro-food sector. The proposed “right to trade” provisions would aim to provide a framework for addressing this problem. While this proposal is highly controversial at the WTO, it does highlight the scope for intensified ACP–EU policy dialogue on the design and application of NTMs.

In October 2013, the Canadian government issued a briefing about the Canada–EU agreement, noting that it includes provisions dealing with SPS measures and dispute settlement that render SPS provisions “subject to dispute settlement”.7 This could offer important precedents for the further development of ACP–EU policy dialogue on moving towards binding SPS dispute settlement arrangements. This issue of moving towards binding SPS dispute settlement arrangements is also likely to be a key area of discussion under the Transatlantic Trade and Investment Partnership (TTIP) negotiations between the US and the EU.8

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